The accounting difference in the annual report is due to the buyout price - which has been set to the market value before the cyclone - being different to the home’s current value after the cyclone.
Councillor Larry Foster asked if the council could sell the properties to recover some of the money.
Chief executive Nedine Thatcher Swann said the council was going through a process of what to do with those properties.
“We’ve developed a tender document to go out to look at some options for us.
“We have a sense around what is relocatable; also how we can recycle some of the materials that are there and repurpose them for the purpose of housing.
“We were always aware that the demolition part of the process was going to be cost-incurring to the council, so when we did the negotiations we were able to include that in the co-funding share that central government provided us.”
Thatcher Swann said in many cases, it was more likely to be cheaper to demolish the houses as most were not fit-for-purpose as a result of the damage from the floods.
Councillor Andy Cranston said it was important to note the council was paying 50% over and above what insurance is paying out.
“When I’m meeting people they always think we’re paying 50% of these properties, but it is a lesser figure than people think,” he said.
Foreman said the loss became less if the amount the council had to pay for it was just the net insurance.
“So the property might be worth $700,000 but the insurance is paying $550,000, therefore we are only paying $150,000, so the loss is a lot less,” she said.
Mayor Rehette Stoltz asked for clarification on the number of houses that were uninsured.
Director of sustainable futures Joanna Noble said she did not know the figure off the top of her head, but it was only “a handful from memory”.
“There were some houses that were insured, but for some reason the insurance companies have not paid out. There’s lots of variables within the insurance,” she said.
Stoltz said some properties were insured, but the insurance companies wouldn’t pay out because the house itself was not damaged, and yet the house was moving.
The council’s surplus was anticipated to be $17m in the annual report. However, it was currently at $10m, an agenda report for the finance and performance meeting read.
The loss was at $6.7m on May 31, but was expected to reach $8m by June 30 as just over half of the houses under Future of Severely Affected Land (FOSAL) were purchased, the report read.
However, the report also forecast that the total losses for Category 3 homes at the end of the year would amount to $4m due to the arrangement between the Crown and council who have a 50-50 cost share agreement to fund the buyouts.
“While we record a loss arising from the individual Category 3 property buyouts, overall council will be better off of around $204m after securing central government funds for our roads and flood protection schemes,” the report read.
The report also said contributing to the loss is an unrealised dividend of $1.6m for Gisborne Holdings Limited and a loss on interest rate swaps of $370,000.
Councillor Teddy Thompson asked if there would be a yearly loss of depreciation. Foreman said the majority of the loss would occur when properties were bought.
“The big hit will occur when we’ve purchased the properties, so the following years the value of that property is valued down, then your depreciation costs are written down and you only recognise the lower cost.”
